STRICTLY CONFIDENTIAL

2014 EXAMINATIONS

ACCOUNTING TECHNICIAN PROGRAMME

PAPER TC8: BUSINESS LAW

FRIDAY 5 DECEMBER 2014 TIME ALLOWED : 3 HOURS

SUGGESTED SOLUTIONS
 1

SECTION A

1. Sources of law in Malawi:

(i) The Republican Constitution of Malawi (1994) is the supreme law of Malawi.
It provides that any act of Government or any law that is inconsistent with the
provisions of the Constitution is, to the extent of such inconsistency, invalid. It
also provides that all legal and political authority of the State derives from the
people of Malawi and shall be exercised in accordance with the Constitution
solely to serve and protect their interests. The Constitution establishes the three
arms of Government: the Executive, the Legislature and the Judiciary and other
constitutional bodies such as the Human Rights Commission.

(ii) Legislation is the body of rules which have been formally enacted or made by
Parliament. Parliament can enact law directly in the National Assembly or
sometimes it gives powers to some other bodies to make law on its behalf. This is
called delegated legislation. Laws made by parliament are referred to as statutes.
Parliament is the only body in Malawi that can pass or change the law; Parliament
may repeal earlier statutes, overrule case law developed in the courts and make
law on subjects which have not been regulated by law before.

(iii) Custom- includes rules of human actions established by usage which are adopted
by the courts because they are followed by the society as a whole or in part. If an
alleged custom is to be incorporated into law, it must be proved to exist in court.
The following tests must be satisfied for the existence of a custom to be
recognized: local custom must have existed since time immemorial; the right to
exercise the custom must not have been interrupted; it must have been exercised
through common consent and not by use of force; it must be reasonable- it must
conform to the general view of right and reason prevailing in the community; and
it should not be in conflict with statute law.

(iv) Common Law refers to the law that was applicable throughout England. It was
originally based on the unification of the various local customary laws of
England. This law was used by Royal Judges in the Royal Courts to decide cases
and is part of case law. Common law introduced the concept of precedent or stare
decisis (let the decision stand). From the time that Malawi was colonized by
Britain, common law became a source of law in Malawi.

(v) Equity – is a system of doctrines and procedures developed by the Court of

Chancery in its attempt to remedy some of the defects of the common law. It is
part of case law. It introduced the concept of fairness and flexibility. Examples of
equitable remedies include rescission, specific performance, injunction and right
of redemption for a mortgagor.
 2

(vi) Inte rnational Law - refers to international conventions and treaties. These do not
become part of Malawi law until they are incorporated by an Act of Parliament or
other domestic legislation. Examples include United Nations, African Union,
SADC and International Labour Organisation (ILO) treaties.

(vii) Academic Writings - legal textbooks and articles by reputable authors are
occasionally accepted as persuasive evidence of the law where no precedents are
available. The weight accorded such evidence will depend on the author’s legal
standing.

2. (a) (i) A cheque is defined in section73 of the Bills of Exchange Act as a bill of
exchange drawn on a banker.

(ii) The effect of a crossing is that the cheque may be met only by payment to
a banker, and cannot be cashed over the counter of the paying bank. The
Act provides that a banker who pays a crossed cheque otherwise than in
accordance with the crossing will be liable to the true owner of the cheque
for any loss the latter may incur by reason of the banker's default.

(b) A Holder in due course is a holder who has taken a bill, complete and regular on
the face of it, under the following conditions, namely: that he became the holder
of it before it was overdue and without notice that it had been previously
dishonoured, if such was the fact and that he took the bill in good faith and for
value and that at the time the bill was negotiated to him, he had no notice of any
defect in the title of the person who negotiated it.(section 29 of the Bills of
Exchange Act)

(c) An accommodation party to a bill is a person who has signed a bill as drawer,
acceptor, or indorser, without receiving value therefore, and for the purpose of
lending his name to some other person. An accommodation party is liable on the
bill to a holder for value; and it is immaterial whether, when such holder took the
bill, he knew such party to be an accommodation party or not. (Section 28 of the
Bills of Exchange Act)

(d) According to section 57 of the Bills of Exchange Act, where a bill is dishonoured,
the measure of damages includes:

(i) the amount of the bill;

(ii) interest thereon from the time of presentment for payment if the bill is
payable on demand, and from the maturity of the bill in any other case;

(iii) the expenses of noting, or, when protest is necessary, and the protest has
been extended the expenses of protest;
 3

3. (a) There are at least four exceptions to the nemo dat quad non habet rule under the
Sale of Goods Act:

(i) Estoppel: section 23 of the Sale of Goods Act recognizes the nemo dat
rule but goes further to provide that where the owner of the goods is by his
conduct precluded from denying the seller’s authority to sell, the buyer
shall acquire a better title;

(ii) Sale under a Voidable Title: a "voidable title" is one whereby a person
who is in possession of goods and is the apparent owner of them in fact
does not possess a good title. The true owner can assert his better right to
the goods, and "avoid" the possessor's title otherwise a buyer who buys the
goods in good faith and without notice of the seller’s defect of title shall
acquire good title- section 24 of the Sale of Goods Act.

(iii) Seller in Possession of Goods : section 26 (1) of the Sale of Goods Act
provides another exception to the "nemo dat" rule. This section reads as
follows: "Where a person having sold goods continues or is in possession
of the goods or of the documents of title to the goods, the delivery or
transfer by that person, or by a mercantile agent acting for him, of the
goods or documents of title under any sale, pledge, or other disposition
thereof, to any person receiving the same in good faith and without notice
of the previous sale, shall have the same effect as if the person making the
delivery or transfer were expressly authorised by the owner of the goods to
make the same".

(iv) Buyer in Possession of Goods: exactly the same result obtains if a buyer
has possession of goods with the seller's consent, and before the property
has passed the buyer sells or disposes of them, or of documents of title, to
a sub-buyer. Provided the sub-buyer acts in good faith without knowledge
of any lien of the original seller, or lack of title of the buyer, then he
acquires a good title if the goods, or documents of title to them, are
actually transferred to him – Section 26(2) of the Sale of Goods Act.

(b) (i) Existing Goods - These are goods which are actually in existence – that
is, substantially in a state in which the possession of them is capable of
being transferred, at the time the contract of sale is made.

(ii) Future Goods - These are goods which are not in existence at the time of
the contract. Therefore, there cannot be a sale of them at that time, but
only an agreement to sell when the goods are actually in existence.
Goods that fall into this category may have to be manufactured before they
become specific, or they may have to be grown.
 4

(iii) Specific Goods – these are not only existing goods but are essentially the
actual goods which will pass under the contract. If you want to buy 10
sweets the seller takes off from the shelf a packet containing 100 sweets
and puts aside 10 sweets- these are the specific goods.

(iv) Ascertained Goods – these are goods identified by both parties, e.g. "two
of those bottles of wine". They are similar to specific goods.

(v) Unascertained Goods – these are goods which are usually in existence
but which have not been specifically identified as the goods forming the
subject- matter of the sale. When they have been so identified, they
become "ascertained".

(c) Section 9 of the Sale of Goods Act provides that where there is an agreement to
sell specific goods, and subsequently the goods, without any fault on the part of
the seller or buyer, perish before the risk passes to the buyer, the agreement shall
be thereby avoided. This means that the contract comes to an end through
frustration.

(iii) (a) A hypothetical example of

(i) Past consideration – Akim promising to give Mark some money because
last year John worked in his garden.

(ii) Inadequate consideration – when a policeman demands to be paid for

catching a thief, he will have provided inadequate consideration for the
payment and so not entitled to it.

(b) The Postal Rule – states that where post is regarded as the proper way of
acceptance, acceptance comes into effect and the offeror is deemed to have been
communicated when the letter of acceptance is posted, correctly addressed and
stamped. In Adams v Lindsell [1818] 1 B & A 681, the defendants were wool
dealers in business at St. Ives, Huntingdon. By letter dated 2 September the y
offered to sell wool to the plaintiffs who were wool manufactures at Bromsgrove,
Worcestershire. The defendants’ letter asked for a reply ‘in course of post’ but
was misdirected, being addressed to Bromsgrove, Leicestershire. The offer did
not reach the plaintiffs until 7pm on 5 September. The same evening the plaintiffs
accepted the offer. This letter reached the defendants on 9 September. If the offer
had not been misdirected, the defendants could have expected a reply on 7
September, and accordingly they sold the wool to a third party on 8 September.
The plaintiffs now sued for breach of contract. It was held that where there is a
misdirection of the offer, as in this case, the offer is made when it actually reaches
the offeree, and not when it would have reached him in the ordinary course of
post. The defendants’ mistake must be taken against them and for the purposes of
this contract the plaintiff’s letter was received ‘in course of post’. The acceptance
was made in course of post (no time limit was imposed) and was effective when
posted on 5th September.
 5

(c) For any person to enforce a purported contract, he must show that he furnished
some consideration for the same. In other words, any purported contract, is
unenforceable at law unless supported by consideration. Consideration was
defined in the case of Currie v Misa [1875] LR 10 Exch 153 at 162 in the
following terms: “a valuable consideration, in the sense of the law, may consist
either in some right, interest, profit or benefit accruing to the one party, or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the
other.”

Consideration may be executory or executed. Executory consideration is a

promise given for a promise. Executed consideration is an act done or completed
in return for a promise. Consideration must not be past -see Re McArdle
[1951] Ch 669. Consideration must move from the promise - Price v Easton
[1833] 4 B & AD 433, the defendant promised X that if X did certain work for
him he would pay a sum of money. Consideration must be something of value but
it need not be adequate Chappell & Co. Ltd v. Nestlé Co. Ltd [1960] AC 87.

(d) A debt may be legally discharged by the payment of a smaller sum of money in
the following circumstances

(i) Where at the creditor’s request, the debtor pays a lesser sum on an earlier
date.

(ii) Where the debtor pays by a different chattel e.g. where the lesser payment
has been made by cash instead of a cheque.

(iii) Where payment has been made at a different place than the parties agreed.

(iv) Where the doctrine of promissory estoppels applies .See- Central London
Property Trust Ltd. V High Trees House Ltd (the High Trees Case)
[1947] KB 130,
 6

SECTION B

5. (a) (i) Summary Dismissal (section 59 of the Employment Act) is termination

of the contract of employment by the employer without notice or with less
notice than that to which the employee is entitled by any statutory
provision or contractual term. There are five grounds for summary
dismissal:

(1) where an employee is guilty of serious misconduct such that it

would be unreasonable to require him to continue the employment
relationship;
(2) habitual or substantial neglect of duties;

(3) lack of skill that the employee holds out to have;

(4) willful disobedience to lawful orders given by the employer; or

(5) absence from work without permission of the employer and
without reasonable excuse.

(ii) Constructive Dismissal (section 60 of the Employment Act) is a form of

unfair dismissal; an employee is entitled to terminate a contract of
employment without notice or with less notice than that to which the
employer is entitled where the employer’s conduct has made it
unreasonable to expect the employee to continue the employment
relationship. Constructive dismissal was proved in Banda v Dimon (Mw)
Ltd (2008) MLLR 92 where the defendant forced the plaintiff, a computer
programmer, out of his job by taking away his office, accommodation,
computer hardware and files.

(b) Remedies for Unfair Dismissal are three- fold.

(1) Reinstatement may be ordered whereby the employee is to be treated in all

respects as if he had not been dismissed.

(2) Re-engagement may be ordered whereby the employee is to be engaged in

work comparable to that in which he was engaged prior to his dismissal or
other reasonably suitable work from such date and on such terms of
employment as may be specified in the order or agreed by the parties.

(3) An award of compensation award is the most popular. It is a lump sum of

money assessed by the court considering immediate loss of wages; manner of
dismissal and future loss.
 7

6. (a) Tort and Contract -Tort aims principally at prevention or compensation of

harms, whereas the core of contract is the idea of enforcing certain promises.
Further in tort the content of the duties is fixed by the law whereas the content of
contractual duties is fixed by the contract itself. Therefore, in order to find out
whether a person has committed a tort you look at the law while to establish a
breach of contract, you look at the terms of the contract agreed by the parties.
However, in any factual situation there may be overlap between the law of torts
and the law of contract. For instance, a claim for damages arising from a
defective product may involve a complex web of issues under the Sale of Goods
Act. The other difference is that in tort, the plaintiff’s claim is for unliquidated
damages, while in contract it is for liquidated damages. In contract they are
liquidated because they are measured by the extent of the breach of the contract,
while in tort they are unliquidated because they have to be determined by law for
example you cannot tell how much is to be paid for a broken leg.

(b) Tort and Crime -Crimes are those acts and omissions which society as a whole
prescribes as being completely unacceptable. Crimes are normally prosecuted by
the state through the criminal courts. Whereas, a tort is a civil action which an
individual prosecutes in a civil court at his discretion. There are however, torts
such as assault and battery, which may also be actionable as crimes and a civil
remedy may be obtained after the completion of the criminal proceedings. The
standard of proof in a civil suit case is on a balance of probabilities whilst in a
crime it is beyond reasonable doubt.

(c) In Donoghue v Stevenson [1932] AC 562, the defendants were manufacturers of

ginger beer. A friend of the plaintiff purchased a bottle of ginger beer for the
plaintiff. The plaintiff took some of the ginger beer but when she poured off the
remainder of the contents of the bottle a decomposed snail floated out of the
bottle. The plaintiff claimed that she suffered severe sho ck and became very ill as
a result of this incident. She was unable to proceed against the manufacturers in
contract because there was no contract between the parties. So she brought an
action in tort against the manufacturers. It was held that the defendants being
manufacturers of ginger beer owed a duty of care to the plaintiff as the ultimate
consumer or purchaser of the ginger bottle making sure it did not contain some
substance which was likely to cause injury to health.

(d) A nuisance is concerned with unreasonable interference with a person’s use or

enjoyment of his land or some right in connection with his land. It concerns
disputes between neighbors relating to their respective uses of land, but it can also
apply to environmental disputes, e.g. where large factories pollute the atmosphere.
A nuisance may be private or public nuisance. A Private nuisance is an unlawful
interference with a person’s use or enjoyment of land, or some right over or in
connection with it for example a neighbor who blasts music in his house causing
discomfort to his neighbors. A Public Nuisance is an act which materially affects
the reasonable comfort and convenience of life of a class of the public/citizen
such as pollution of a city.
 8

7. (a) An agency relationship is created in the following ways:

(i) By express agreement

(ii) By implied agreement
(iii) By ratification
(iv) Through the doctrine of necessity

(b) An agency relationship can be terminated in the following ways:

(i) By express revocation of it by the principal

(ii) By death of either the principal or the agent.
(iii) By effluxion of time
(iv) By the execution or completion of the task.

(c) The following are the rights of a purchaser in a hire purchase agreement:

(i) The right to the return of goods repossessed by the purchaser for default of
payment of instalments where the purchaser pays all the unpaid
instalments.

(ii) A right to pay any instalment of the purchase price before it is due.
(iii) The right to terminate the agreement.
(iv) The right to be reinstated after return of goods to seller.
(v) The right to pay outstanding balance of purchase price.

(d) An agent has the following duties towards his principal:

(i) Obedience to the instructions of the principal.

(ii) The duty to exercise due care and skill in performing his duties on behalf
of the principal.

(iii) The duty to be honest and not to take bribes or make secret profits.
(iii) To avoid conflict of interest between his personal interests and his duties
towards the principal.

(e) An agent is deemed to have apparent authority when a person by words or

conduct represents to a third party that the agent has authority to act on his behalf.

END